January 10, 2023

Natural gas shortages in Western Australia have forced aluminum producer Alcoa to curtail alumina production by 30% at its 2.2 million mt/yr Kwinana refinery, according to Bloomberg. The refinery has switched to diesel for its remaining operations. The current natural gas supply outage is due to an equipment failure at a Chevron natural gas plant. There is no word on when gas supply will be restored to Kwinana, nor when alumina production would resume full capacity. This natural gas shortage has also forced Alcoa’s Wesfarmers refinery to run on emergency natural gas supplies. Alcoa’s three alumina smelters produce approximately half the country’s production. At 21 million mt, Australia was the world’s second-largest alumina producer in 2021, bested only by China. (Sources: Bloomberg, Reuters, USGS)

The news from Australia is the second positive catalyst the aluminum market has seen since January 1. China has just implemented a slew of economic stimulus measures that aim to boost its faltering real estate sector. These measures and alumina production issues in Australia could remain supportive of aluminum prices. Aluminum end-users that are concerned about increasing prices could consider buying swaps or call options, as either would establish a maximum aluminum price. Such positions are standard for consumer hedging; however, they can result in opportunity costs or cash costs if metal prices decrease. Please contact AEGIS for specific strategies that fit your operations. (1/10/2023)

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